Chinalco to inject $19.5bn into Rio Tinto

Rio Tinto has announced a $19.5bn (£13.6bn) cash injection from Aluminium Corp
of China as the mining company moves to cut its debt pile.

Aluminium Corp, or Chinalco, will invest $12.3bn in some of Rio's aluminium, copper and iron ore projects. Alongside the investment, it's buying $7.2bn of convertible bonds, which will see Chinalco's stake in Rio double from 9pc to 18pc.

Rio confirmed that it was in talks with Chinalco earlier this year, but said at the time there was no certainty of any deal.

Rio's chairman Paul Skinner said that the deal will "strengthen Rio Tinto's balance sheet, increase our flexibility to deliver growth as markets recover and position Rio for the next decade."

Shares in Rio have tumbled almost 70pc since rival BHP Billiton in November abandoned plans to buy Rio, which at the peak of its share price was valued at $194bn.

The sale of stakes in key assets is likely to raise concern that Chinalco may be able to influence pricing talks with Rio, as China is a major customer of the group. The Australian government reluctantly agreed to allow Chinalco to raise its stake in Rio Tinto plc to 14.99pc in August, which represents 11pc of the Rio Tinto group as a whole, so the company may face a challenge in getting Canberra to agree to the deal.

Rio has $9bn of debt due to be paid back in October, with a further $10bn due in 2010, most of its associated with its purchase of Canadian aluminium producer Alcan at the top of the commodities boom. The deal, should it receive regulatory approval, would more than cover these two payments.

The resignation of Jim Leng, Rio Tinto's chairman designate, on Monday after he attended just one board meeting paved the way for a deal to be struck with the Chinese group.

It is widely believed that Mr Leng wanted to the company to undertake a rights issue to service its $37bn debt pile, instead of doing a deal with the Chinalco, a route said to be favoured by chief executive Tom Albanese.